The D.C. Court of Appeals handed business groups a win Friday by ruling that a federal labor agency overreached during the Obama administration when it vastly expanded corporate legal liability under a doctrine known as “joint employer,” which made franchisors potentially liable for the actions of their franchisees.
The court said the agency had to rewrite the rule and narrow its scope. Reversing the doctrine has been a major goal of the business community.
The court, in a 2-1 ruling, said that the then-Democrat-led National Labor Relations Board, the main federal labor law enforcement agency, overreached when it ruled in a 2015 case called Browning Ferris that a business could be held liable for workplace violations at another business if it had “indirect control” over the other business’ workforce. The court said that standard was far too vague and directed the NLRB to specify the circumstances when the doctrine applied.
Business groups called for a quick response by either the board, the administration or Congress to firmly settle the issue. “The unfortunate twists and turns continue for franchise owners in this ongoing saga,” said Matt Haller, senior vice president president of government relations for the International Franchise Association. “If the 2nd highest court in the land can’t interpret how the Obama NLRB intended for their convoluted joint employer standard to be applied, how is a small business owner supposed to figure it out?”
The new standard was used by the NLRB to bring a labor rights case against McDonald’s Corporation by arguing that it was responsible for its franchisees. The indirect control standard benefited unions since it allowed them to try to organize a single franchisor corporation all once.
Friday’s ruling is a boost to the Trump administration, which has already been working to reverse the doctrine at the federal departments and agencies involved in workplace monitoring and enforcement. The NLRB, now with a Republican majority, had reversed the Browning-Ferris ruling in case last year called Hy-Brand that limited the doctrine to cases of “direct control,” restoring the pre-2015 standard for joint employer. The board vacated that ruling earlier this year, however, following concerns that one of boardmembers should have recused themselves from the case. That effectively left the broader joint employer doctrine technically still in effect. The NLRB is currently working on a re-write of the rule.
A spokesperson for the NLRB could not be reached for comment. The board is a quasi-independent agency whose five board members are appointed by the president to five-year terms and are confirmed by the Senate but otherwise act independently.
